Broker's take: DBS says new NFC-enabled SIM cards may not be widely used

THE newly introduced Near Field Communication (NFC)-enabled SIM cards may not be widely used in Singapore, and are not likely to impact the three telcos, DBS Group Research said in a note on Wednesday.

The NFC-enabled SIM cards, for one thing, are not compatible with the iPhone, leaving out a big portion of the market, said DBS analyst Sachin Mittal in the note. The iPhone, which commands over a third of the market share in Singapore, supports only Apple Pay, a mobile payment and digital wallet service by Apple.

As well, subscribers will have to fork out S$37.50 to purchase the new NFC-enabled SIM cards from all three local telcos for "no extra benefit", said Mr Mittal.

Apple Pay, on the contrary, has been "quite successful" in the US due to its user friendliness and security features. Said Mr Mittal: "Apple Pay makes the contactless payments secure with 'Touch ID' authentication. Even if an iPhone is lost, it cannot be misused by anyone versus a lost Visa payWave card which can be used by anyone."

The conventional EZ-Link card, he added, while similar to a Visa payWave card as it does not require the swiping of the card, is not "widely popular" for retail transactions, even in Singapore.

NFC-enabled payments do not add any security feature to the EZ-Link card, but Apple Pay adds security to credit card transactions, he pointed out. "So we do not see that the NFC-enabled SIM based payments will be widely used."

Telcos may not get "much commission" out of the transactions, as the bulk may go to EZ-Link for its large customer base using it for buses and trains, Mr Mittal noted.

"Most negatives are priced in for M1, which is trading at 14x FY16F PE (price earnings) and represents a 12 per cent discount to StarHub's 16x. But, a potential upside will only emerge if there is no new entrant in the mobile sector."

The DBS analyst maintains a "fully valued" rating on StarHub (with a target price of S$3.30) and a "hold" rating on M1 (S$2.60), due to the potential entry of a new player which will only be clear in Q3 2016.

The NFC-enabled SIM cards, which were unveiled on Tuesday by the Land Transport Authority, Infocomm Development Authority of Singapore and EZ-Link Pte Ltd, allow users to pay for their public transport rides and shopping at over 30,000 EZ-Link acceptance points across the island, with just a tap of their smartphones. They are compatitble with 19 smartphone models including those of LG, Samsung and Sony.